VA Loans And Down Payments: What You Should Know

The VA loan benefit includes the ability to purchase a home with no money down. This is one of the most important aspects of your VA mortgage loan benefits and can save you thousands up front when purchasing. Yet some VA borrowers new to the process wonder why they have heard stories of other veterans making down payments on homes purchased with a VA loan. Why does this happen?

There are several reasons, some of which are the borrower’s choice, some of which may not be. Some borrowers choose to make a down payment when none is required simply because they want to lower the principal balance of their loan as quickly as possible and have lower monthly payments.

Making a down payment can be part of a good financial strategy, and those who can afford to do so may save more over the lifetime of the VA mortgage loan. But in some cases a borrower’s choices require them to make a down payment. This happens in a variety of ways, but the most common one is for borrowers to purchase a home where the appraised value is not equal to the asking price.

A borrower facing this situation is not legally bound to buy the property, but those who choose to do so must make up the difference between the appraisal and the sale price in cash-it cannot be financed. So for all intents and purposes, this money up front would be a sort of down payment.

Another situation where a down payment may actually be required is when a borrower applies for a VA mortgage but has borderline credit issues or other financial qualification difficulties; a lender may approve the loan on the condition that a down payment is made.

Another situation where a down payment could be required? Where the loan itself is higher than the VA loan guaranty limit in that market. According to the VA official site, VA mortgages feature “…no maximum loan amount; however, VA does limit its guaranty; Veterans can borrow up to $417,000 without a down payment in most of the country”. But a loan that exceeds that limit would require cash up front.

If you are not sure whether a down payment is right for you, or required of you, for a specific transaction, speak to a loan officer to get further clarification based on the details of your transaction.